In times of tight margins, every purchase must have a purpose with ROI top of mind. As you optimize your equipment, crop inputs, farmland and business intellect for the year ahead, take the time to plan your work, and then you work your plan.
After the 2024 Top Producer Summit, Terrain economist Matt Clark had a question to answer: Are equipment costs getting too high?
“There has been a narrative shift from labor as the top issue no one sees going away to now being equipment costs as burdensome,” he says.
Spurred by those conversations, Clark researched equipment expenses today compared to four years ago. He notes from 2020 to 2023, the consumer price index (CPI) has increased 17%, and the price index for ag equipment is up 30%.
“On top of the sticker price, financing expenses have risen,” he says.
Hear more from Clark at the 2025 Top Producer Summit. Registration is open now.
From the Federal Reserve Bank of Kansas City’s ag finance data, in the first half of 2024 the average size of equipment loans is up 41% compared to the same time in 2020. In four years interest rates are up 5.25% — now north of 8%.
“Take these things together: equipment is more expensive, loans are larger, interest rates are up and the average maturity is up,” he says.
The Kansas State Farm Management book has farm equipment costs up between 25% and 40% in three years, depending on non-irrigated or irrigated operations. The University of Minnesota calculates equipment costs up 25% to 30% from 2020 to 2023.
Track The Trend Line
On the balance sheet, where should equipment budget out to be?
“The sentiment matches the data. Gross receipts aren’t expected to keep up with this uptick in new machinery expenses,” Clark says. “It’s a substantial part of your production costs.”
Clark analyzed new tractor pricing since the 1980s, and while it’s accelerated quite a bit in recent years, there’s a trend line of how it correlates with cost per acre.
He’s used a metric of dividing the cost of equipment by the gross farm income on an acre of corn using national average yields and prices.
“Over time, the ratio has been cyclical with a long-term average,” he says. “It’s around 350 acres of corn to buy a new 200 hp tractor and slightly less than 450 acres of corn for a 300 hp tractor. On the cyclical nature of that — tractors are priced above that or below that cyclical average. Right now, we are trending above the historical average after several years of trending below average.”
Long-Term Implications
Clark says this trend will lead to a shrinking pool of new buyers.
“With the compression in margins, consolidation and higher interest rates (for now), it will be harder for a small farm, for example in Kansas referencing its data, to justify buying new given the overall trajectory and direction of these equipment pricing trends,” he says.
The disconnect between what makes equipment more expensive (labor, steel, energy, transportation, computer chips, etc.) and what drives farm income (commodity prices) will continue to drive this discussion of machinery costs versus value, Clark says.
“The efficiency gains are where it’s at. With bigger equipment we can farm more acres,” he explains. “There is still a sweet spot of farmers getting more productive when upgrading equipment. And for some, the ability to automate also brings additional gains in productivity.”
Your Next Read: How One Farmer Turned the 1980s Disaster Into Enduring Success
